Many times people ask “Do you need a financial/investment advisor?”. Perhaps a better question would be what would you need from a financial advisor?
Many people have a fixed conception of what a financial advisor is, including the advisors themselves. They also have a fixed picture of what they should be doing for you, and how everyone needs to have one, because that is what we are told by society. My question would be why does it have to be that way? Well, it doesn’t. I hope to provide a different perspective on the relationship one might have with a financial advisor, which also might help people find a competent & knowledgeable one as well. Remember that an advisor in a particular domain, fills in gaps of specialized in-depth knowledge that an individual may be missing. That knowledge, when combined with your own, is intended to enable you to make sound decisions. Note that nowadays financial/investment advisor roles are usually mashed into one, as many hold both designations & certifications.
No Financial Advisor?
I personally don’t have a financial advisor in the traditional & generally accepted sense. That is, I don’t have someone looking over my finances, telling me what mutual funds, stocks, or bonds to invest in. I don’t have that same person also telling to make RSP(401k) contributions or open a TFSA (Tax Free Savings Account in Canada), and purchase GICs or mutual funds for them. No one directs me on how to allocate funds within my paper assets.
Before I continue with the article I’ll explain why don’t I have one. My personal opinion is along the lines that a financial advisor in this area should be doing financially better than you due to their own financial/investment knowledge & activities, and not from their salary/job. They also have to be above the average person financially & knowledge wise. Why would you take advice from someone who is in the same boat as the average person? And is heading in the same direction as everyone else? That is unless you also want to be like the average person financially (nothing wrong with that, as its up to the individual). Another important criteria is someone should only advise you, if there is no conflict of interest. That cuts out most retail financial/investment advisors out there that earn commission off recommending investment purchases, as well as those who make money (from their employer either in salary or other indirect means) for having/attracting a client that has assets exceeding X thousands. Is that last example valid? Well if you were able to attract 10 clients with assets under management of $1M each, I’m sure it will show up in the yearly employee performance review. But I’ll leave that entire discussion for a different day. Now, onto the actual discussion for those who have thought about looking for a financial advisor, and how I you can look at it in a different perspective.
The closest thing I have to a “financial/investment advisor” is my banker. Although he does have the certifications and designations as an adivsor (among other certifications), I use the term banker because it is a bit more encompassing. In the beginning, I wasn’t really looking for any type of financial/investment advice, or an advisor. I needed to know a way I could make a particular loan for a large investment I wanted to make. I went to several branches where other advisors really didn’t want to help, or just didn’t have the knowledge to help me. Essentially they rejected me. I am very certain it was because either they didn’t understand what I was trying to do (the investment was not something they were selling), or because I was a relatively young “nobody” with little net worth or money in my accounts with them. Finally I went to another branch, ironically in a not-so-well-to-do neighborhood, and was again dished off to a newer younger advisor. This happens quite often because usually the more senior ones are too busy to deal with people that have relatively small accounts! I told him what I was there for (loan for investment) and wasn’t interested in anything else. To my suprise he listened, and understood what I was telling him. He focused the discussion on what I wanted to do. He eventually came up with an effective solution to do it, with what he had at his disposal. He respected that I was a DIY investor by not attempting to sell me anything, tell me to invest in something else, tell me that my investment was too “risky” etc, or that I should be taking a more traditional approach like everyone else (invest in well diversified portfolio of mutual funds). From that day forward I kept going back to him for all my financial service needs, and he is an important part of my advisory team. Today he is a senior manager in the financial district of the city’s downtown core, and no longer just a financial advisor. To say the least, he is both knowledgeable & competent.
What? No Mutual Funds!?
The relationship we have is very different than what one would normally expect. He doesn’t advise me on what I should do with my investments or what I should invest in (mutual funds, stocks, bonds, GICs, RSPs, etc). We often have general conversations on economics, taxation, business, politics, banking & insurance industries, etc. I usually go in to do general account administration activities, make use of loan facilities (for personal, business, or investments other than stocks), and move money into GICs or term deposits to hold proceeds from larger investments. To me, he is essentially my expert on the tools that are available to a bank. I go into his office looking for a tool that can perform a specific task. He tells me which tools available can do the job (whether or not the average person uses it for that purpose). He also does not hesitate to refer me to other professionals if the bank cannot do something I require, or with the terms/conditions that I am looking for. He leaves all the financial & investment planning tasks to me.
A Different Perspective
To see it from another perspective, imagine the individual investor as a vehicle inventor who builds unique vehicles, that are meant to reach particular destinations determined by the inventor. The financial advisor, or in my case banker, can be thought of as the tool expert/supplier (toolman). The toolman knows all the tools that available to him inside out (characteristics, pros/cons, limitations, etc). The inventor seeks out the toolman when he does not have a tool in his posession that performs a specific task which is necessary to complete building the current vehicle. The toolman will list a bunch of tools that may have the properties the inventor is looking for. The inventor may then decide that the listed tools may not work. He may also ask about other tools that were designed for different purposes, but might still be able to do the job. The toolman may also conclude that conventional tools available may not work, and may come up with a new tool (new, combination, variation, etc). He might also refer the inventor to another toolman, or a someone with a specialized set of tools/services.
A good toolman needs to know a wide variety of tools, and everything about them. He will not tell the inventor what kind of vehicle to design, how to build it, or where its destination should be. Nor does he disallow the inventor from using a particular tool for a different purpose than it was originally intended for (unless it is unsafe, or falls outside its capabilities). For example, lets say the inventor wanted to use a screwdriver to make a specific sized hole in a piece of metal. The toolman shouldn’t object, unless it was unsafe, cause damage to the vehicle, or the strength of the metal worked on would likely end with the screwdriver snapping causing negative consequences.
There a vast range of tool experts out there, with varying levels of competency & knowledge. Some will try to sell you all kinds of tools (regardless of the vehicle you are building), while others might have only a limited set available. Many will only recommend tools from their company, or exagerate about how great it has worked before for other inventors (irrespective of the unique vehicles they were building, if any). Some will even try to sell entire vehicles built by other inventors, and claim it will take them to a similar destination.
But at the end of the day the inventor must never forget that he is the one building the vehicles and selecting their destinations. And at different times he will require a different set of tools, which will facilitate building those vehicles. The toolman will have those tools, but Buyer Beware! You need to find a good toolman, just like you find a good mechanic for your car. Does your mechanic make you buy one car or another? or tell you where you should to drive to?
The use of the word “tool” can also be used in an analogy describing investments as tools, where they are used to build parts of what has been drawn out in an investment plan. But in this particular analogy I use “tools” in a different way to explain.
The question to think about is, what do you need from a financial advisor? It doesn’t have to be what society tells you it is, that you need from them.
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Thanks & Happy Investing!
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